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Kelly Herzog has converted a 54-room hotel in Eagle into a micro-apartment building, with large communal gathering areas. The model could help ease the affordable housing crunch in Colorado's resort communities. (Jason Blevins, The Colorado Sun)

EAGLE — Hammocks stretch over the former poolroom turned yoga studio. A dog and bike wash station fills what was once a sauna. An amply couched nook, lined with old skis, has replaced the check-in desk.

“A lot of what we are selling is the experience of living here,” says Kelly Herzog, the Eagle Valley developer who converted a 54-room hotel in Eagle into a grown-up dormitory opening Dec. 1. “We are going for that community atmosphere.”

Herzog’s hotel-to-homes project could resonate among resort communities grappling with a housing crisis. Houses that once rented to working locals are shifting to the lucrative short-term rental market. Land and home prices are soaring alongside construction costs.

Options for housing the thousands of workers who keep resort economies humming are limited. Developers mine the high-dollar resort market, eschewing the regulatory and financial challenges of building affordable units.

It’s a housing storm threatening resort towns across the West. And those winds are what prodded Herzog, her husband, Grant, and his brother, Jason, to forge a new concept from the AmericInn hotel, just off Interstate 70 in Eagle.

The Herzogs run a development, construction and property management firm and, in a unique reversal of high-country trends, they are taking short-term rentals and converting them to apartments leased for the long-haul.

Developers Jason, Kelly and Grant Herzog spent four months renovating a former hotel in Eagle into micro-apartments with large communal rooms and shared spaces. (Jason Blevins, The Colorado Sun)

Kelly secured the Town of Eagle’s permission to rezone an existing building to meet the overflowing demand for affordable housing in the high country.

She’s chasing millennials who value experiences over stuff, providing small rooms with large communal spaces as one of many possible solutions to the housing plight menacing resort economies across the West.  

“I think there is great potential there actually,” says Willa Williford, a Crested Butte-based housing consultant who has helped seed workforce housing programs in mountain and urban communities in California, Montana and Colorado.

Williford has seen small projects convert a commercial property to residential in some towns, and those required extensive renovation. There are opportunities for similar conversions in many mountain towns, she says, noting how locations like Boulder, Estes Park, Steamboat Springs, Gunnison, Fraser and Granby have under-used hotels that could work as micro-apartments for workers.

“It’s definitely attractive from the perspective of a renovation not costing as much as new construction and these are nice locations,” Williford says.

Some developers have poked around at the possibility, she says. But nothing like Herzog’s project — called, simply, The House — has come to fruition. Yet.

It’s not uncommon for large employers to house seasonal workers in hotels. City Market leases hotel suites for workers in Gypsum. Vail and Beaver Creek resort workers often occupy hotels in Eagle. Crested Butte Mountain Resort houses some of its temporary workers in a hotel in Gunnison.

The City of Steamboat Springs once bought a defunct hotel to house city employees but sold it to a group that is developing a mixed-use project.

Kim Williams, the executive director of the Eagle County Housing and Development Authority, left, and developer Kelly Herzog check out the new communal room at The House, a former Eagle hotel converted to micro-apartments. (Jason Blevins, The Colorado Sun)

But those hotels do not involve a private developer rezoning a commercial property to residential with only a slight remodel, like The House. Herzog spent most of 2018 working with Eagle’s planning and zoning board and board of trustees to win approval for the project. It wasn’t easy, she says, heaping praise on town planners who worked with her unique project.

Her proposal — taking a commercial property offline — meant less immediate revenue for Eagle, with a decline in both property and lodging taxes. But she was replacing a short-term visitor with a year-round resident who would be buying food at the grocery, dining in local restaurants and supporting other local businesses.

There were four hotels in Eagle. Now there are three. Town planners and trustees noted that the loss of the AmericInn would mean about 19,000 fewer hotel room-nights available in the town.

But the vacancy rate for the town’s hotels was around 47 percent, so the remaining three hotels could easily absorb the loss.  

“It all kind of netted out, in a sense that that where we saw a decrease in lodging revenue collection, that was offset by absorption of lodging room nights by other hotels and it was also offset by having those long term residents here shopping in our stores and building that community and creating that critical mass for a more vibrant economy,” Eagle Town Manager Brandy Reitter says.

Still, Herzog had to secure variances in the zoning as she converted the hotel into a high-density apartment building. The Town of Eagle is in the middle of a revamp of its comprehensive plan and land-use codes, which will codify the vision for Eagle’s future.

“A lot of change is happening. We want to stay ahead of the game and we want to be malleable to what the town’s residents want,” Eagle Trustee Matt Solomon says. “This is definitely a unique and creative project. I give them props. I’m excited to see it unfold.”

Leaders in mountain towns like Eagle are laboring within the confines of land regulations created decades ago as economies evolve.

Recreation amenities, like nearby ski areas, whitewater parks and mountain bike trails, are luring new residents who can work from their homes. Small, work-anywhere businesses are setting up bases in towns that once served as quiet bedroom communities for commuters supporting resorts up the valley.

Housing prices are climbing, and the lack of affordable homes has trickled downvalley from ski towns to those former bedroom communities, such as Eagle, Montrose, Gunnison, Carbondale, Silverthorne and Granby. Housing for year-round residents — not just seasonal workers — has reached the top of many municipal priority lists.

In the Lake Tahoe region of California, populations are growing and many layers of regulation protect the critical watershed. Zoning changes have allowed developers to convert the region’s ample supply of hotels and motels to housing, but few have taken the opportunity, said Tom Lotshaw with the Tahoe Regional Planning Agency, which helps lead the cooperative work to protect Lake Tahoe while addressing growth.

“One of the big issues that has come up is the cost involved in bringing those housing units up to modern fire, public health and public safety requirements. The cost of doing that can be prohibitive,” Lotshaw says. “We have a whole bunch of folks here working on affordable housing issues, but we have not seen a lot of these kinds of projects here.”

Resort communities have spent decades cajoling developers to build affordable housing. In places like Aspen and Vail, developers must provide worker housing for every high-dollar condo or home they build. Other rules give tax breaks to builders who deliver mid-priced homes so locals can live and raise families in playgrounds where average home prices reach well beyond $1 million.

“There’s always a private-sector model out there, you just have to work with the developer to make it work. It doesn’t always have to be subsidized by the government,” says Aaron Blair, the town manager of Granby, which has almost 500 affordable units approved for construction by private developers in the next two years.

One developer in Granby is studying the conversion of an office building into affordable workforce housing. The town has been adjusting its zoning to allow for more accessory dwelling units above garages and in basements and backyards.

Another developer will soon close on one of Granby’s motels — a tired remnant of an era when station wagons loaded with families traversed Highway 40. But that builder is scraping and starting fresh with a mixed-use project that will increase the density of the building exponentially, Blair says.

“We are focusing on in-fill,” he says. “We are changing our zoning code, taking away some regulations. We are making pretty big headway on affordable housing here.”

Even with a raft of incentives, the high cost of land and construction can make it difficult to persuade developers to build high-density workforce housing near ski resorts. But further downvalley, it gets easier for a developer to pencil a project. Especially if the building is already built.

At The House, Herzog is trying to reach younger residents with a cooperative housing feel. Her daughter lives at Denver’s Turntable Apartments, a former hotel near Mile High Stadium that recently converted to micro-apartments.

Studio apartments at The House are targeted toward younger renters who are less interested in personal space than in places designed to encourage community, like the lobby of what was once the AmericInn in Eagle. (Jason Blevins, The Colorado Sun)

The Herzogs’ visits to the Turntable sparked the idea for the AmericInn conversion. Residents can sign up to use the restaurant-style communal kitchen — occupied by a catering company that will offer breakfast and take-away lunches. The former hotel lobby is lined with couches and televisions, so residents can gather. The rec room includes tools and a workbench for tuning skis and tinkering with bikes.

A board of new residents will help guide group outings and events. The three-story, pet-friendly building has 40 studio apartments — each around 300 square feet — with refrigerators, microwaves, hotplates, furniture and a bed, renting for $1,360 a month, including utilities and a dedicated high-speed Wi-Fi connection for each apartment.

Larger studios — up to 445 square feet — rent for up to $1,600. The House is on the valley’s bus route and residents can walk to just about everything in town. While each unit has one parking spot, the idea is that residents don’t need a car to live there.

“This is really designed to accommodate the millennials who don’t have a lot of stuff and don’t need space, but they want big spaces to hang out,” says Herzog, a longtime Vail-area commercial real estate broker. The Herzogs built the 76-unit Red Table Apartments in Gypsum last summer — reviving a pre-recession project that aimed to build and sell 18 condos — and quickly rented every unit.

“I think these millennials are on to something,” she says. “There is so much to love about this concept. I think it lends itself to a lot of different markets, and I think this is the future. I don’t know if people will want to go back to wanting lots of space for lots of stuff and rooms full of furniture.”

Apartments at The House in Eagle are 300-450 square-feet, with rents starting at $1,360, with utilities included. (Jason Blevins, The Colorado Sun)

Eagle County’s housing shortage mirrors those found in Summit and Pitkin counties.

The Eagle River Valley’s latest housing-demand analysis — compiled in part by Williford — shows the need for 2,780 new housing units right now to catch up with unfilled jobs, overcrowding in existing units and workers commuting into the valley from another county. The report shows a need for more than 4,000 new units by 2020, nearly 6,000 units by 2025 and 7,800 units by 2030.

One of the issues many high-country housing advocates are grappling with is the explosion of short-term rentals. Homeowners across the country — in big cities and tiny towns — are taking their second homes off the long-term rental market and renting to vacationers. One solution to the deluge of short-term rentals is to build more hotels, so those vacationers have options and their homes could house locals.

Hotel construction stalled during the recession and only now is trickling back, but not nearly fast enough to meet the demand of record-setting numbers of tourists flocking to mountain destinations.

That’s what makes Herzog’s project so interesting. She’s taking hotel rooms and renting them for a year.

“What I’ve been seeing doing workforce housing consulting, so many communities are seeing housing for employees as the barrier for economic growth right now and they are setting housing goals for seasonal residents,” Williford says. “This looks like a less resource-intensive way of accomplishing some of those goals. It’s always a multi-faceted strategy and it’s not going to be one single thing that solves the housing problem. But this is a step.”

It took about four months to renovate The House, and tenants are lining up to move in.

If it works as she hopes, she envisions sharing the model in other communities  — repurposing existing buildings instead of building new. Encouraging high density in downtown areas. Putting new residents near bus routes, parks, shops and restaurants.

“That’s green development,” Herzog says. “This is what development should look like. This is the way to do it.”

Jason Blevins lives in Eagle with his wife, daughters and a dog named Gravy. Topic expertise: Western Slope, public lands, outdoors, ski industry, mountain business, housing, interesting things Location: Eagle, CO Newsletter: The...